Memorandum

Novo Nordisk CSO Dr. Mads Thomsen explains company’s evolving R&D strategy, focus on diabetes-adjacent indications in WSJ – October 30, 2017

In a Wall Street Journal article published this weekend, Novo Nordisk CSO Dr. Mads Thomsen discusses the company’s adaptive R&D strategy – what used to be more of a laser focus on insulin has broadened to advanced diabetes drug classes like GLP-1 (Victoza was approved in 2010), and to diabetes-adjacent indications like obesity, CV disease, chronic kidney disease, and NASH. This commentary is in line with the R&D strategy outlined on Novo Nordisk’s 3Q16 earnings call, when management alluded to a “higher innovation threshold” and expansion into diabetes-adjacent indications. This was the same quarter that Novo Nordisk discontinued its phase 2 oral insulin, which was a blow. As Dr. Thomsen explains in the WSJ, bringing a new insulin therapy to market today would be complicated by pricing pressure (manufacturers can no longer count on rising insulin profits to fuel growth) and the perception of incremental rather than disruptive improvement. In our view, oral insulin does hold potential to be quite disruptive, though we recognize that this is a complex proposition due to lower bioavailability and insulin’s narrow therapeutic range. We absolutely disagree with the implication that Tresiba (insulin degludec) is merely an incremental step above its predecessors, especially in light of SWITCH and DEVOTE data showing a clinically-meaningful hypoglycemia benefit vs. standard of care Lantus (Sanofi’s insulin glargine). That said, we do acknowledge the very high differentiation bar for new diabetes drugs today, particularly insulin, and we note that given patient heterogeneity, some refined therapies will be a bigger deal for some patients than others.

Dr. Thomsen suggests that there was a level of “competing against ourselves” in developing products solely for diabetes, whereas obesity and NASH are more vastly under-treated conditions in the real world (there are still very high numbers of diabetes patients who aren’t getting the care they need, but this is partly due to access, and ultimately we do see Dr. Thomsen’s point here). We’ve seen the company’s emphasis on diabetes-adjacent indications manifest in many ways. As one example, Novo Nordisk is forging full steam ahead with obesity trials of semaglutide before the once-weekly GLP-1 agonist has even been approved for type 2, and the company has initiated phase 2 studies of semaglutide in NASH as well.

Notably, in his interview with the WSJ, Dr. Thomsen calls for outcomes-based contracts between manufacturers and PBMs – we’d like to see more of this as well. If a Novo Nordisk product helps a population of patients achieve better glycemic control and health outcomes, the company pays smaller rebates to the PBM. On the other hand, if the drug doesn’t perform as well as promised, Novo Nordisk pays a higher rebate. Outcomes-based contracts are certainly gaining favor, slowly but surely. Medtronic/Aetna entered an agreement like this around MDI users moving to pumps in June. Dr. Thomsen also highlights Novo Nordisk’s annual report showing that 60% of income is returned as rebates. We applaud the company’s efforts toward pricing transparency, though we note that until manufacturers report this value in a standardized way, it’s impossible to compare between them. Still, that isn’t really Novo Nordisk’s problem and we hardly think it’s reasonable to ask for every price on every contract.

The timing of this WSJ piece is notable, as we await Novo Nordisk’s 3Q17 financial report on Wednesday (November 1). In 2Q17 and other recent quarters, next-gen basal insulin Tresiba has been a bright spot alongside GLP-1 agonists Victoza (liraglutide) and Saxenda (liraglutide 3.0 mg for obesity), while the modern insulin portfolio (older products including basal insulin Levemir and rapid-acting Novolog) has shown more sluggish sales.

 

-- by Payal Marathe and Kelly Close